China, Japan and South Korea will set in motion formal talks for a three-way free trade pact and unveil an accompanying investment treaty at a summit in Beijing on Sunday.
The three nations are major traders, and together accounted for 19.6 percent of the world's economy and 18.5 percent of its exports in 2010, according to a feasibility study of the proposed trade pact that the governments issued late last year.
"We agreed to propose that our three countries start negotiations before the end of the year. We strongly expect that the three leaders will agree to this," Japanese Trade Minister Yukio Edano told reporters on Saturday night after talks in Beijing with his Chinese and South Korean counterparts.
Chinese Premier Wen Jiabao will host Japanese Prime Minister Yoshihiko Noda and South Korean Lee Myung-bak for the summit.
"We are pursuing high-level economic cooperation as part of our national strategy," Noda told the Wall Street Journal in an interview. "The Japan-China-Korea FTA is an extremely important piece of it."
China is the biggest trade partner of both Japan and South Korea. A free trade treaty could lift China's GDP by up to 2.9 percent, Japan's by 0.5 percent, and South Korea's by 3.1 percent, China's official Xinhua news agency said, without citing the basis for the estimates.
"China is simply a huge market," said Noda. "That's all there is to it."
But the three neighbors are also divided by political distrust, trade barriers and diverging investment policies that even Xinhua acknowledged would make for difficult negotiations on a free trade agreement.
"The conclusion of the feasibility study in 2011 and the nearly finalization of the three-way investment treaty has paved the way for launching the FTA talks, but that only marks one step forward along the long negotiation journey," Xinhua said in a commentary on Sunday.
"More importantly, political trust is badly needed in this sensitive region, not only in political affairs but also in economic ties," it said.
Tokyo and Beijing have long been in dispute over territorial claims in the East China Sea, where both sides stake claims to potentially valuable gas beds.
Beijing also faces insistent demands from Tokyo and Seoul to put more pressure on North Korea, whose nuclear weapons ambitions and rocket tests have alarmed the region.
(Additional reporting by Mari Saito in Tokyo; Editing by Jeremy Laurence)